Budgeting in the COVID-19 era
The novel coronavirus that has triggered a global pandemic has altered the landscape of budget season to varying degrees for county administrators and town managers alike.
“This is the most unpredictable budget I have ever worked with,” Buckingham County Administrator Rebecca S. Carter said. “And the budget is a guide to help to hold the county accountable as much as possible, to provide for the needs of our citizens and to understand their difficulties and the resources to pay their taxes on time.”
Carter said these are uncharted times for all, filled with plenty of uncertainty, but she did offer a simple summary of the financial effect COVID-19 will have at the national, state and local levels.
“The bottom line is we do not know what (overall) effect this will have, but I guarantee it will have a negative financial effect, and we have to stay financially able to continue essential services to the public until we can recuperate from this tragic turn in our country, state and local econom(ies),” she said.
She noted significant changes to Buckingham’s fiscal budget will be in store.
“I had prepared a good portion of our budget prior to our world as we know it being turned upside down,” she said. “As this started to unfold, I went back through the numbers to try to reflect a more logical revenue collection anticipation. Our county is on twice-a-year tax billing, so we have to be a bit ahead of most other localities in order to get a tax set by the end of April.”
Carter said she presented a balanced budget with a reserve for contingency — a difference in anticipated annual revenue and anticipated annual expenditures — of about $480,000 mostly because county administration does not know precisely what impact the unexpected coronavirus will have on the federal, state and even local levels.
“June is our largest real estate collection month and April is actually our largest personal property and county decal revenue months,” she said of Buckingham. “It is without a doubt (that) these months of revenue will be profoundly reduced.”
Carter said it is not only anticipated but understandable why some citizens may not be able to pay their taxes on time.
“Having this reserve will help keep the county in balance hopefully until things get better for our citizens,” she said. “The county has extended the deadline for the county decals, so I know that April collections (will) be affected by several hundred thousand dollars.”
She said county administration will constantly monitor all revenues and expenditures.
“I feel sure we will be adjusting our budget all through the year to try to stay in balance and accountable,” she said.
Additional public hearings will not be necessary unless the budget is increased a certain percentage or more than $500,000, Carter noted.
Mentioning an example of the challenges the county is facing as it works to continue providing services in the face of reduced revenues, Carter said COVID-19 has had a demanding impact on contracted rescue squad crews.
“As of right now (they’re) all paid as the volunteers have stepped back for various reasons,” she said. “The county most likely will have to pay for another 24/7 crew to handle the squad calls, as I believe we have just begun our uphill climb. That could cost about $50,000 a month, and while most will most likely be reimbursed due to the emergency declaration, the county has to have the money to pay up-front. Those reimbursements will be a long time coming in.”
Farmville Town Manager Dr. C. Scott Davis said Friday, April 3, that the budget process for the town was well underway when the COVID-19 pandemic began to impact Farmville life in March, so he will have to revisit work already done.
“As far as from a revenue side, I know the first part that I’ve already done is going to have to change because of what has occurred over the last month,” he said. “So I’m waiting to get some of those true figures in order to adjust those revenues for next year.”
He noted true numbers from March will be received sometime in April.
“I don’t have any numbers right now for next year’s budget,” he said. “I’ve only done a few predictions on how it will finish out this year.”
Farmville was impacted in March in terms of tourism, lodging and retail sales, the early departure of Longwood University and Hampden-Sydney College students, the revenue from students’ families visiting, people being able to go out to eat, curbside services, etc.
“All of that will have an impact on some estimated numbers for the budget and us building next year’s budget,” Davis said.
He indicated he and the treasurer are looking at all their options.
“Obviously we’re looking at how long this lasts, if it lasts through June or longer, how it affects the current year but also next year, because if some of these businesses come back online, how long will it take them?” he said. “If they don’t come back online and are permanently gone, potentially, those have ramifications.”
Davis said sales tax in Farmville will be affected by the pandemic.
“Sales tax we actually split between the county and the town,” he said. “The meals tax and the lodgings tax, whatever is in the Town of Farmville, we get.”
He noted Farmville’s Business, Professional and Occupational License (BPOL) tax is different from the county’s BPOL tax.
“We have a separate real estate tax than they do, but that won’t change, because the assessments aren’t due until next calendar year for the county,” he said. “Our tax rate for real estate should not change this year. But it’s more of what I call variable taxes, which are the ones like meals, lodging, Business, Professional and Occupational License — those types of things that will change based on the Stay-at- Home (Order) and the pandemic itself.”
Davis highlighted the BPOL tax in particular because those taxes are on the calendar year from January to December, he said.
“That’s gross proceeds is what that’s based on,” he said. “That’s every type of business, pretty much, in town that that can affect, so any of those numbers will reduce that for this coming year’s budget.”
The town’s fiscal year runs from July 1 through June 30, just like Prince Edward County.
Prince Edward County Administrator Wade Bartlett said budgeting lately has been challenging, but much of the county’s revenue streams will be unaffected for now.
“As I was developing the budget and thinking about the challenges, what I’ve realized is that the county’s major revenue streams are what’s called inelastic or fixed, which means they are revenue streams that are based on assessed values, which don’t really change,” he said.
He highlighted real estate rarely changes until there is a reassessment, and the county has one every six years. A reassessment is presently underway but is not yet completed.
Bartlett also mentioned other possible changes in real estate value, like if a house is demolished, eliminating any value, or if a homeowner adds on to it, giving it greater value.
“But most of the time they don’t change much,” he said. “The same with automobiles or anything with an assessed value.”
He noted that between real estate and personal property, about two-thirds of the county’s revenue is represented.
“If you look at all of what’s called inelastic revenues, it’s about 80%,” he said.
Bartlett acknowledged a variable when he said that even though the county’s tax may be termed inelastic, there is still the matter of whether or not people will pay it.
“Now, most people will pay the real estate tax,” he said. “That’s one of the biggest things they pay, because they’re concerned a lien may be placed on their property.”
Another plus for the county is that most of its real estate and personal property revenues have already been paid.
“Our biggest collection is in December,” he said.
Bartlett does expect certain county revenue streams to be reduced, though.
“I did decrease things such as local sales tax, and motor vehicle license we decreased and several other things like that, so do I expect that we’re going to see less revenues? Yes,” he said. “It’s very hard for me to calculate that.”
He projected that local sales tax, budget to budget, would go down a little more than 9%, which is almost $300,000.
“Now, that is budget to budget,” he said. “But when I had projected the actual revenues that we would receive through the end of June, when I did that in January and February before all of this (pandemic) happened, I was projecting that we would collect over $3.1 million. It usually goes up each year incrementally, 2-3%, so I would have projected probably about $500,000 more than what I have now. So while budget to budget it’s only 9%, in reality that $500,000 is really about 17%.”
He said what he is hearing now from other people and other businesses is that people are not paying their bills, which could happen in Prince Edward as well.
“It will be May before we even see the impact of the sales on the sales tax for March, so that makes it very difficult for us,” he said. “I think we’re going to see some decreases in sales and economic activity for obvious reasons. The question is, ‘How much?’”
He noted that one good thing with Prince Edward is the county has a pretty substantial fund balance.
“So I think we will be able to hold our own during this process, but you never know,” he said. “And the biggest unknown is how long will this have to go.”